Investors often overlook sales growth while picking stocks, as a company’s stock price is generally sensitive to its earnings momentum. However, earnings are quite vulnerable in the sense that books can be easily cooked and inflated. That’s why sales must always be taken into consideration while making any investment decision.

Sales growth is actually an important indicator of a company's health and ability to sustain its business. It provides investors an insight into product demand and pricing power. The main advantage is that the sales figure is generally not manipulated and is less volatile than earnings.

Without some top-line growth, the bottom-line improvement may not be sustainable in the long term. While a company can show earnings strength by reducing expenses, a sustainable bottom-line recovery usually requires sales growth.

Focusing solely on sales growth is not enough though. A healthy sales growth rate is certainly a positive indicator for picking good stocks but it does not ensure profits. Therefore, taking into consideration a company’s cash position along with its sales number can prove to be a more dependable strategy.

Substantial cash on hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments. Cash also enables a company to endure market downturns. Most importantly, a sufficient cash position indicates that revenues are being channelized in the right direction.

Selecting the Winning Stocks

In order to shortlist stocks that have witnessed impressive sales growth along with a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow more than $500 million as our main screening parameters.

But sales growth and cash strength are not the absolute criteria for selecting stocks. So, we added certain other factors to arrive at a winning strategy.

Price-to-Sales (P/S) Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.

% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Better-than-industry estimate revision has often been seen to trigger an increase in stock price.

Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs, an optimal situation for the company.

Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means the company is spending wisely and is in all likelihood profitable.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment. 

Here are five of the 14 stocks that qualified the screening:

Based in New York, AMC Networks Inc. (AMCX - Free Report) owns and operates various cable television's brands delivering content to audiences as well as a platform to distributors and advertisers. Expected sales growth rate for the current year is 3.4% and the stock carries a Zacks Rank #2.

The Progressive Corporation (PGR - Free Report) offers personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services. This Mayfield Village, OH-based company’s expected sales growth rate for 2018 is 18.6% and it sports a Zacks Rank #1.

The Interpublic Group of Companies, Inc. (IPG  - Free Report), headquartered in New York, provides advertising and marketing services. Its current-year expected sales growth rate is 7.3% and the stock carries a Zacks Rank #2.

Headquartered in Boston, MA, State Street Corporation (STT - Free Report) provides a range of financial products and services to institutional investors. The company’s expected sales growth rate for 2018 is 9.6% and it carries a Zacks Rank #2.

Broadridge Financial Solutions, Inc. (BR - Free Report) offers investor communications and technology-driven solutions for the financial services industry. This Lake Success, NY-based company’s sales are expected to grow at the rate of 4.7% for 2018 and the stock carries a Zacks Rank #2.